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Finance
SCHWAB SAYS CLIENT CASH MOVES ARE EASING, BEATS DEPOSIT FORECAST
* The firm’s bank deposits fell 28% in the third quarter
* Schwab says that cash realignment activity is slowing down
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A Charles Schwab location in New York.
Photographer: Victor J. Blue/Bloomberg
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By Paige Smith and Silla Brush
October 16, 2023 at 2:18 AM HST
Updated on
October 16, 2023 at 4:11 AM HST
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3:04
Charles Schwab Corp. executives said its cash-sorting problems, with clients
moving money from the bank into higher-yielding products, are beginning to abate
despite persistently elevated interest rates.
“Cash realignment activity decelerated further during the quarter — even with
the brief uptick in August and an increase in long-term interest rates,” Chief
Financial Officer Peter Crawford said in a Monday statement as the firm reported
its third-quarter results.
The Westlake, Texas firm said deposits fell 28% to $284.4 billion in the third
quarter from the year prior, beating the $268.8 billion average estimate of
analysts surveyed by Bloomberg.
Schwab shares rose 3.7% to $53.22 at 10:05 a.m. in New York.
The firm’s net interest revenue sank 24% to $2.2 billion from the year prior as
clients moved cash into higher-yielding products. Schwab reported $46 billion in
core net new assets for the quarter, and $27 billion in September — which was a
decline of 32% from a year earlier. Adjusted earnings per share were 77 cents, a
slight beat on analysts’ estimates of 74 cents.
Net revenues fell 16% to $4.6 billion from a year prior, slightly missing
analysts’ expectations. Full-year 2023 revenue is expected to decline 8% to 9%
versus the prior year, the firm said on a slide during its earnings
presentation. Still, executives told analysts that Schwab stands to gain from
elevated rates due to its multiple variable-rate products.
EXPENSE SAVINGS
The Federal Reserve’s interest rate hikes over the past year-and-a-half to
combat inflation have pressured Schwab’s banking arm, a pivotal source of
revenue. Higher rates encouraged some clients to move money from the bank to
other investment products, including money-market funds, in a process known as
“cash sorting.”
Company executives have previously said that the worst of that deposit move is
over and they anticipate growth again by the end of this year.
The stock tumbled about 38% year-to-date after the bank was hit by some of the
turmoil that consumed mid-size banks this spring. The firm issued roughly $2.4
billion of senior notes in late August, “further bolstering our diversified
liquidity profile,” Crawford said Monday.
He said the firm will likely issue more debt “to build up extra liquidity” ahead
of some debt maturities Schwab is expecting early next year.
The firm has also identified opportunities for increased efficiency, including
“harnessing the benefits of increased automation,” Chief Executive Officer Walt
Bettinger said in the statement. “Once fully implemented, we expect these
actions to deliver at least $1 billion of incremental annual expense savings.”
The brokerage continues to integrate with TD Ameritrade, and unveiled
MondayBloomberg Terminal a revamped trading platform built in part on TD
Ameritrade’s systems.
“It’s a super-charged, holistic retail trading experience that surpasses its
predecessors and makes Schwab the clear destination for retail trading,” James
Kostulias, managing director and head of trading services at Schwab said in a
statement. “Trading is a huge focus for us at Schwab and represents a critical
part of our overall business as we go forward.”
(Updates share price in fifth paragraph and additional context starting in sixth
paragraph)
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